Report on Exchange Rates Applied to United States Offshore Procurement Contracts in Italy

This report relates to the rate of exchange applied to offshore procurement contracts awarded under the Mutual Defense Assistance Program (MDAP) in Italy. The cost of MDAP offshore procurement contracts is increased by a charge imposed by an agency of the Italian Government for the conversion of dollars to lire. Similar charges are not incurred in connection with other United States transactions in Italy. Based upon the volume of MDAP contracts awarded in Italy during fiscal years 1952 through 1956, this exchange charge may total more than one million dollars. About one half of this amount has not yet been paid. Our European Branch sought the advice of the American Ambassador at Rome on the practicability of undertaking negotiations to extend to MDAP offshore procurement contracts the same exchange rates that are applied to other United States expenditures in Italy. The officials of the Embassy apparently concluded that negotiations should not be initiated since the exchange charges do not violate existing agreements between the United States and Italy. Nevertheless, because of the potential savings which might result from such negotiations, we believe that this matter warrants further consideration at the department level. There may be factors considered in undertaking negotiations of this nature which are not treated in the report. However, based upon the information available to us at the present time, there seems to be adequate reason for initiating negotiations with the Italian Government to eliminate the exchange charges.